Financial Management Issues for PBL

Transcription

1 Financial Management Issues for PBL WHAT ARE WORKING CAPITAL FUNDS? The concept of working capital management originated with the old Yankee peddler, who would load up his wagon with goods and then go off on his route to peddle his wares. The merchandise was called working capital because it was what he actually sold, or turned over, to produce his profits. The wagon and horse were his fixed assets. He generally owned the horse and wagon, so they were financed with equity capital, but he borrowed the funds to buy the merchandise. These borrowings were called working capital loans, and they had to be repaid after each trip to demonstrate to the bank that the credit was sound. If the peddler was able to repay the loan, then the bank would make another loan, and banks that followed this procedure were said to be employing sound banking practices. 1 For the private sector, working capital consists of: cash, inventory, and accounts receivable (what customers owe the company). All are necessary to conduct business, but the hard question is: In what quantities? The greater the inventory, the smaller the danger of running out, results in less operating risk; but if inventories are too large, they earn zero dollars, or in reality, a negative return due to storage and obsolescence costs. Therefore, there is an extreme pressure to hold the working capital carried to the minimum consistent while running the business without interruption. DEFENSE WORKING CAPITAL FUND (DWCF) The DWCF is a revolving fund, or account, in which all income is derived from its operations and is available without fiscal year limitations. It provides financial accountability within a business-like atmosphere with customer-provider relationships between government entities and commercial vendors. It creates incentives by identifying the total cost of providing goods/services, minimizing costs, and measuring performance. Under WCF a provider does not perform work without a funded order or anticipated sale, nor can they exceed capital costs or run out of cash. The DWCF is established under Title 1 USC, Section 228, and funds activities (depot maintenance, supply, R&D, ordnances, DFAS, transportation, base support, information services, etc.); each financed primarily with O&M funds. There are two types of revolving funds: the stock funds for supplies, fuel, food, etc., and the industrial funds for maintenance, overhaul, repair, and modification of weapon systems and components, as well as other functions such as research and development (R&D). DWCF Management The management of the DWCF falls under the Anti Deficiency Act. Examples of ADA violations include: obligations for capital purchases exceeding the limitation on the operating budget, cash outlays in excess of the fund, and obligations exceeding 1

2 available budgetary resources. The DWCF is managed by a policy board of Defense and OMB financial representatives. It maintains a central policy approach, with decentralized execution. Components manage their own business areas. Each business area is managed and operated as an independent entity, but cash is corporately held by each Fund and OSD. The purpose of the DWCF is to improve cost awareness, promote cost consciousness, mirror private sector operations, identify full cost, keep decision makers aware of the cost of their decision, create buyer-seller relationships, etc. As such, the WCF does not save or lose money, but focuses on cost and cash management. The primary way DWCF working capital funds differ from the commercial version is one of incentives. While profit is the incentive in the private sector, breaking even is the motivating force in DWCF. Each working capital fund activity has the goal of achieving a Net Operating Result (NOR) of zero in a given fiscal year, which means the activity generates sufficient revenues to match the cost incurred. If profits (losses) occur during the year, the unit responsible for pricing, such as NAVSUP, lowers (raises) price to compensate in the next fiscal year WCF Comparison $ in Millions Army Navy Army Air Force Navy For 22, the AWCF is the only one with a negative NOR. The AWCF also appears to be the only one needing supplemental appropriations from Congress. In 1997, prior to Gen Babbitt s cost management activities the AF had significant financial losses. They have a very high positive NOR for 22 and are now explaining how it happened to Congress. FIGURE 1: WCF NET OPERATING RESULTS Funds provided to a working capital fund activity span fiscal years and remain available in order to pay for the goods or services being provided by the activity. In contrast, appropriations are earmarked for specific purposes and have a finite period of time in which they must be used. Working capital fund activities recover all costs through the stabilized billing rates charged to customers. These include direct costs, indirect costs, general and administrative (G&A) costs (overhead), and any prior year gains or losses. DWCF RATE SETTING CATEGORIES The customer rates are established for products/services furnished by a provider on a unit cost or activity based costing processes. Rates are based on full costs (direct, 2

3 indirect, G&A, gains and losses from prior years, and depreciation). Depreciation is straight line basis with ADP equipment and COTS software at 5 years; internally developed software and equipment at 1 years, and facilities at 2 years. For supply, rates include cost of the goods plus a surcharge that recovers the actual costs of operating the supply business. Distribution Depot rates include cost of receipt, storage, packing, and shipping for goods ordered by customers, expressed as cost per line item received, stored, or shipped. Depot Maintenance rates include cost incurred in repair, rework, or modification of depot level reparable items or components, expressed as cost per direct labor hour. In the following table is the annual percentage of change and the hourly depot rates for the three services from 22 to 25. FY 22 is actual, the rest are projections. WCF CUSTOMER RATE CHANGE (PERCENTAGE) Supply Army Air Force Navy Depot Maintenance Army Air Force Navy Depot Maintenance Hourly Rates Army Air Force Navy TABLE 1: WCF CUSTOMER RATE CHANGE & DEPOT MAINTENANCE HOURLY RATES Supply Management Business Areas Individual item prices are established by including the cost recovery elements, by percentage or fixed amount, with the commodity acquisition cost of the item. The commodity cost (or acquisition cost) is the most current cost of a representative procurement. The cost recovery factor is developed based on operating costs plus prior year gains/losses; shipping and transportation (inventory issues, customer returned items with/without credit, depot level reparable (DLP) exchange carcasses, lateral redistribution), inventory expenses, inventory maintenance, economic adjustments for inflation, and repair cost including attrition (washouts and losses). Supply operations includes civilian labor, military personnel at supply activities, a portion of the Headquarters costs related to inventory management, the receipt and issue of material, and the depreciation of capital assets. 3

4 The supply management entities for the AWCF are shown in the following table. AWCF SUPPLY MANAGEMENT ENTITIES U.S. Army Tank-Automotive and Armaments Command, Rock Island, Il DLA and General Services Administration (GSA) Items: U. S. Army Aviation and Missile Command, (AMCOM) Huntsville, AL U. S. Army Communications-Electronics Command, Fort Monmouth, NJ U.S. Army Tank-Automotive and Armaments Command, Warren, MI (TACOM-W) U.S. Army Tank-Automotive and Armaments Command, (TACOM-RI) Rock Island, Il U.S. Army Soldier and Biological Chemical Command, Aberdeen Proving Ground, MDSBCCOM HQ, U.S. Army Materiel Command (AMC), Alexandria, VA Non Army Managed Items (NAMI) Central Business Unit Includes repair parts, industrial supplies, general supplies, and ground support supplies Aircraft and ground support items, missile systems items Communication and electronics items Combat, automotive, and construction items Weapons, special weapons, and fire control systems Ground support items, and chemical weapons Propositioned War Reserves: DLA/GSA items: repair parts, clothing, subsistence, medical supplies, industrial supplies, ground forces supplies TABLE 2: AWCF SUPPLY MANAGEMENT ARMY ACTIVITY GROUP MAJOR SUBORDINATE COMMANDS Each Air Force Logistics Center (ALC) functions as an inventory control point (ICP) for specific type items (electronics, engines, command and control, etc). Each center has its niche and these responsibilities are neither redundant nor competitive. As the Logistics Centers perform maintenance, they buy from each other s ICPs. Non-Supply Management Business Areas Include depot maintenance, research and development, distribution depots, etc. and use unit cost rates based on identified input/output measures. These measures establish fully cost burdened rates, such as cost per direct labor hour, cost per product, cost per item received, cost per item shipped, stored, etc. Rates are based on full costs, which include: direct, indirect, general and administrative costs, gains and losses of prior years, and depreciation. Cost is the language that every one understands. To be competitive an organization must know true cost prior to determining what they will charge to provide a service. In a service organization the biggest expense is labor. How an organization is structured and how efficiently the workers produce a service determines profit. (See charts 4

5 comparing WCF revenue and expense per employee.) Typically, processes use resources (people, technology, etc.) from several functional areas, or cost centers. The Aviation TechLoop process is an example of the complexity of procurement of items for weapons systems. The Technical Loop can include over 5 check points prior to forwarding a procurement work TECH & ACQ Lead Time by TEAM 1,2 1% directive (PWD) to the Acquisition 1,1 9% 1, 8% Center. Depending on the item, check 9 8 7% points may do a cursory review or an indepth review and approval process. To 7 6% 6 5% 5 4% determine the true cost of procurement, 4 3% 3 the fully loaded labor cost for each 2 2% 1 1% person who reviews the procurement % # 1 # 2 # 3 # 4 # 5 action must be included, in addition to TECH ACQ % TECH % ACQ the labor cost of employees in the acquisition center. FIGURE 2: AVIATION TECHLOOP EXAMPLE For each PBL initiative, NAVICP conducts a Business Case Analysis (BCA). The BCA is designed to quantify any cost benefits the Navy will realize through the initiation of a PBL contract. The BCA process involves determining the Navy s current cost of doing business. This without PBL cost is compared to the cost to the Navy with a PBL arrangement. The with PBL cost includes both the PBL supplier s costs as well as residual cost the Navy will retain even under a PBL arrangement. These cost benefits may take the form of cost saving or cost avoidance. The savings goal is to break even or better in both the NWCF and in total cost to the Navy. Some cost areas considered in the BCA are: Fleet maintenance labor Spare parts procurement Warehousing Transportation Sustaining engineering Fleet consumables Other government labor Other supply system costs Depot repair The Navy has two inventory control points Aviation and Sea. Both are aggressively into PBL. The NAVICP buys performance (Honeywell on the APU) and sells parts. They must then translate performance into parts for accounting purposes. As the NAVICP develops the BCA they include a cash management plan in order to continue to have money to pay the NAVICP overhead. If all of the WCF dollars are obligated to contracts, they will have no cash to pay themselves. When a contract is in place, all of the cash must be paid on the first day of the FY versus the traditional method of paying for each transaction over the entire fiscal year. 5

6 Comparisons of WCF Activity Groups ARMY, AIR FORCE, & NAVY ACTIVITY GROUPS 2 Army Activity Groups Air Force Activity Groups Navy Activity Groups Supply Management buys and maintains assigned stocks of materiel for sale to customers, primarily Army operating units. The Single Stock Fund (SSF) provides total asset visibility, down to and including the Division Authorized Stockage Level. The implementation of the SSF and the Logistics Modernization Program (LMP) will provide real time management of the inventory and greater flexibility to optimize assets for AMC MSCs. Depot Maintenance provides organic industrial capability to repair, overhaul, and upgrade weapons systems equipment; compete and partner with private industry to deliver goods and services from five major depots: Anniston, Corpus Christi, Letterkenny, Red River, and Tobyhanna, all managed by AMC. Ordnance provides organic capability to produce quality munitions and large caliber weapons, ammunition maintenance and renovation, manufacture, storage and demilitarization. There are three arsenals, two ammunition plants, five ammunition storage depots, and three munitions centers managed by AMC MSCs. Information Services provides for development and sustainment of automated information and communications system; commercial sources for purchase of small/medium computers, hardware and software and support services. Operates on a cost reimbursable basis and will decapitalize at end of FY3. Supply Management activities procure and manage inventories of consumable and reparable spare parts required to keep all elements of the force structure mission ready. New flat-rate surcharge to reduce the item price volatility from year-to-year. Focus on filling backorders and improving performance factors, aggressively pursue reducing impact of growing parts obsolescence, 19% of electronic warfare components have no qualified manufacturing or repair source. Depot Maintenance provides the equipment, skills, and repair services necessary to keep forces operating worldwide. Higher material cost driven by costs of engine parts and higher consumption. Double digit sales rate growth associated with increasing age of aircraft fleet. Transportation provides the worldwide mobility element of the global engagement vision through a partnership of military and commercial assets. Over 8% of cost base is in support of contracts and materials, productivity initiatives resulted in savings of over $1.3B. AF has cash management responsibility but does not have day-to-day management responsibility for transportation operations. Information Services activities make it possible to operate and improve data collection and management systems essential to war fighting and support activities. The use of the Software Engineering Institute/Capability Maturity Model certification helps insure the level of competence is comparable to private industry. Uses over hires to access direct labor personnel to accomplish user requested programs; will allow for lower rates. Adding IDE personnel and personnel related to contracting systems in FY 4. Supply Management provides inventory management functions for shipboard and aviation repairable and consumable items, management of overseas Fleet Industrial Supply Centers and miscellaneous support functions for ashore and Fleet commanders. NWCF funds such initiatives as Serial Number Tracking and Enterprise Resource Planning (ERP) to be used to reengineer and standardize business processes, integrate operations, and optimize management of resources while controlling cost and improving readiness. Depot Maintenance includes three active shipyards which perform functions such as logistics support for assigned ships and service craft, three active aviation depots to repair aircraft, engines and components, and two Marine Corps depots which inspect, repair, rebuild all types of ground combat and combat support equipment. Converting Puget Sound to mission funding for 2-year pilot in FY 24. Transportation Military Sealift Command operates service-unique vessels, primarily civilian manned, to provide material support to the Fleet, Special Mission Ships which provide unique seagoing platforms and Afloat Propositioning Force ships which deploy advance material for strategic lifts; managed from five area and three sub-area commands around world. Research & Development consists of the Naval Research Laboratory, the Naval Air Warfare Center, the Naval Surface Warfare Center, the Naval Undersea Warfare Center, and the Space and Naval Warfare Systems Centers to provide a wide range of R&D, test, evaluation, and engineering support functions. Base Support consists of nine Public Works Centers and the Naval Facilities Engineering Service Center providing utilities services, facilities maintenance, transportation support, engineering services, and shore facilities planning support. TABLE 3: ARMY, AIR FORCE, & NAVY ACTIVITY GROUPS 6

7 WORKING CAPITAL FUND OPERATION The WCF operates, in theory, as follows: 1. Congress provides a one-time cash deposit. 2. Customer (warfighter) receives annual appropriations. 3. Customer sends work orders or project orders to the WCF provider. 4. Provider furnishes the service or product, pays for expenses incurred, and bills the customer. 5. Customer pays the bill. 6. Provider operating losses/gains (in the current year) increase/decrease customer rates in the following year. An example of combining types of money is the Joint Surveillance and Target Attack Radar System (JSTARS). The platform is a Boeing 77 commercial plane. The standard items are in the WCF. However, inside the Boeing 77 are newly developed items with PBL support agreements outside the WCF. With JSTARS, the prime contractor (Northrop Grumman Corporation) is a Product Support Integrator (PSI) or sole-source contractor for Total Systems Support Responsibility (TSSR) and has dual responsibility to manage buying items from the government (WCF provider) and for buying unique items from commercial sources. The AF holds the PSI responsible for supply and maintenance, whether the parts and services are organic or commercial. Consequently, the PSI has some flexibility. For example, if the PSI orders a part from the government, with an expected delivery time of 1 days, and the government provider cannot meet the delivery date, the contractor is allowed to go to another source of supply. This element of competition exists to keep the government provider customer focused. Contract clauses are also in place to protect the contractor in case there is a defect or problem with the government provided parts or services. 3 There are also off ramps to protect the interest of the government. If the contractor does not deliver satisfactory services, provisions are written into the contract to allow the government an exit strategy. (See Appendix II for a JSTARS summary.) The charts below compare the dollar amounts of WCFs. Budget tables for the actual amounts in the Fiscal Year (FY) 24/FY 25 Biennial Budget Estimates are in Appendix V. 7

8 The Working Capital Funds (WCF) operate under the same rules across DoD. A perception exists across services that the operation of the funds varies from service to service. After comparing the funds, the most significant difference is the amount of revenue in each fund. As indicated in this chart, the Navy and Air Force funds are almost five times as large as the Army fund. This may explain why the Army is concerned about the impact of funding large PBL contracts. 25,. 2,. 15,. 1,. 5,.. WCF Revenue Comparisons $ in Millions Army Air Force Navy Million $ Supply Management Activity Group: Revenue per Employee Army Air Force Navy One method of measuring the productivity of an organization is to compare activity measures. The amount of revenue generated for each employee of the organization is an example. From this chart, we can see that, based on the total number of civilian and military employees with WCF salaries, the revenue generated per employee is considerably higher for the Air Force Supply Management Activity Group than for the other two services supply management groups. The revenue per employee for the Depot Maintenance Activity Group is approximately twice as high for the Air Force as it is for the other two services. Multiple variables exist that could affect an activity rate. The number of employee supporting Air Force may not be as large as the other services due to the number of contractors supporting the weapon systems. An increase in the number of employees would result in less revenue per employee. Million $ Depot Maintenance Activity Group: Total Revenue per Employee Army Air Force Navy 8

9 25,. 2,. 15,. 1,. 5,.. WCF Expenses Comparison $ in Millions Army Air Force Navy The comparison of overall expense across the AWCF, the NWCF and the AFWCF is similar to the comparison of total revenue per fund. Expenses are necessary to generate revenue and should match revenue since the net operating results of the DWCF is zero. Once again, just the difference in amounts between these funds explains why the impacts of certain policies are so significant. The Depot Maintenance Activity Group is the largest customer of the Supply Management Activity Group. The utilization rate of supplies and other goods per employee may be considered an indicator of how much inventory is purchased, distributed, and managed by each supply employee funded by DWCFs. Once again, the AF use of contracts for total system support may be inflating the cost per employee. Million $ Supply Management Activity Group: Cost of Goods & Services per Employee Army Air Force Navy Million $ Depot Maintenance Activity Group: Cost of Goods & Services per Employee Army Air Force Navy Cost of Goods and Services per Employee is another activity ratio. As an employee accomplishes depot repairs they must use parts and other services to accomplish maintenance. Cost per employee is a measure of the activity, not how cost effective the available parts and supplies are, nor how efficient the labor is when using those same parts and supplies FIGURE 3: DWCF COMPARISON CHARTS FOR SUPPLY & MAINTENANCE SERVICES 9

10 The WCF is viewed in terms of supply and maintenance, not platforms or systems. One proposal is to establish WCFs that are program unique. Then, if the WCF wishes to issue a PBL to buy performance from vendors, the separate fund would be used for the total life cycle cost of the program (e.g., Cargo WCF, Apache WCF, etc.). The creation of such a WCF would raise the question of how to apply the overhead from the MSCs (AMCOM, TACOM, etc.) to multi-systems. The NWCF and the AFWCF activities are heavily involved in strategic sourcing initiatives and expect to continue to produce savings through actions such as A-76 competitions and functionality reviews. No mention is made of AWCF savings from these same competitions and reviews. The Army has eliminated the wholesale/retail concept from the AWCF. It is now a single stock fund and in the future should show savings from the elimination of duplicate bookkeeping. By law, the WCFs are required to include performance indicators. Figure 7 shows additional comparisons of the WCFs. Additional tables are in Appendix V. These charts compare the budgets for the Army, Navy and AF WCFs. Working capital funds present unique challenges. The other services have embraced the WCFs and have found opportunities to exploit the positives. AMCOM will need to work with the Army s financial managers to develop a similar situation. This area requires indepth knowledge and understanding. It is also the most misunderstood concept that we explored with our interviewees. There is an abundance of information and we have tried to provide a concise financial management summary. 1

11 APPENDIX: Financial Management 11

12 Supply Management Civilian Full Time Equivalent (FTE) Depot Management Ordnance Management Information Services Total AWCF FY 24/25 BIENNIAL BUDGET ESTIMATES Personnel FY 22 FY 23 FY 24 FY 25 3, , , ,84 7 2, , , , , , , , , , , ,51 5 Revenue Supply Management 3, , , ,789.6 Depot Maintenance 1, , , ,891.7 Ordnance Information Services N/A N/A Total 6,98.8 8, ,85.4 8,235.3 Cost of Goods & Services Produced (Expenses) (All $ in millions) Supply Management 1 3,72.7 5, , ,789.6 Depot Maintenance 2 1, , , ,871.1 Ordnance Information Services N/A N/A Total 6, ,86.3 9,2.3 8,324.1 Net (NOR) and (AOR) 5 Supply Management Depot Maintenance Ordnance Information Services Totals Notes: 1 Spike in FY24 cost reflects efforts to increase spare availability and reduce backorder levels. 2 Growth due to price growth and program increases for recapitalization of legacy systems and equipment. 3 Reduction includes a reduction of $65.5M in direct UPC funding. 4 Cost reimbursable and will be decapitalized at end of FY23. 5 AWCF operates on breakeven basis and set revenue rates to achieve positive or negative results in order to bring the AOR to zero over the budget cycle; effectiveness is measured by comparing performance to the NOR goal N/A N/A N/A N/A TABLE A-1: AWCF FY 24/25 BIENNIAL BUDGET ESTIMATES 12

13 Supply Management Civilian Full Time Equivalent (FTE) Depot Management Transportation - MSC Information Services Total AFWCF FY 24/25 BIENNIAL BUDGET ESTIMATES Personnel FY 22 FY 23 FY 24 FY 25 2, , TABLE A-2: AFWCF FY 24/25 BIENNIAL BUDGET ESTIMATES 2, , , , , , NA NA NA NA 1, ,3 1,196 1, ,26 1,114 1, ,649 1,17 1, ,263 1,99 Revenue Supply Management 8, , , ,592.3 Depot Maintenance 6, ,15.3 5, ,917.2 Transportation 6,328. 5,679. 4,12. 4,719. Information Services Total 22,3.5 21, , ,93.8 Cost of Goods & Services Produced (Expenses) (All $ in millions) Supply Management 8,42.8 9,597. 9, ,436.2 Depot Maintenance 6, ,4.7 5, ,685.7 Transportation 5,648. 5,76. 4,542. 4,732. Information Services Total 21, , , ,529.2 Net (NOR) and (AOR) Supply Management Depot Maintenance Transportation Information Services Totals , , ,

14 Supply Management Civilian Full Time Equivalent (FTE) Depot Management Research & Development Transportation MSC Base Support Total NWCF FY 24/25 BIENNIAL BUDGET ESTIMATES Personnel FY 22 FY 23 FY 24 FY 25 6, , , , , ,349 2,132 6, , , , , ,726 2,155 5, , , , ,3 18 8,328 2,6 5, , , , , ,842 2,16 Revenue Supply Management 7,19.2 7, , ,12.8 Depot Management 4,72.6 4, , ,644.5 Research & Development 9, ,731. 8, ,365.6 Transportation 1, , , ,848.3 Base Support 1,692. 1, , ,522.1 Total 24,54. 24, , ,51.3 Cost of Goods & Services Produced (Expenses) (All $ in millions) Supply Management 6, , , ,12.8 Depot Maintenance 4, , , ,625.9 R&D 9, ,73.9 8, ,365.6 Transportation - MSC 1, , ,71.1 1,848.3 Base Support 1, ,54.6 1, ,522.1 Total 24, , , ,482.8 Net (NOR) and Accumulated Operating Results (AOR) Supply Management Depot Maintenance R&D Transportation Base Support Totals TABLE A-3: NWCF FY 24/25 BIENNIAL BUDGET ESTIMATES

15 PERFORMANCE INDICATORS LISTED IN WCF BUDGET FOR MILITARY SERVICES AF WCF Stockage Effectiveness Measures how often the supply system has available for immediate sale that items it intends to maintain at base and depot level supply locations. Division FY 22 FY 23 FY 24 FY 25 Materiel Support 73% 74% 75% 77% General Support 87% 87% 87% 87% Medical-Dental 94% 95% 95% 95% Academy 97% 97% 97% 97% NMCSR Not Mission capable Supply Rate Percentage of time a weapons system is down for parts. Assuming no other factors impact aircraft availability, then the aircraft availability is computed 1 minus NMCSR. NMCSR is computed only for weapon systems, it is not computed for weapons system parts: such as engines. Weapon System FY 22 FY 23 FY 24 FY 25 A % 12.9% 14.3% 14.9% B-1B 21.1% 21.1% 22.4% 23.2% B-2 5.6% 5.6% 6.4% 6.9% B % 1.7% 11.8% 12.3% C % 17.5% 18.7% 19.4% C % 13.% 14.3% 14.9% C % 9.8% 1.6% 11.5% C % 14.% 15.5% 16.1% E-3 9.4% 9.4% 1.1% 1.8% E % 11.5% 11.% 7.9% E-8 4.9% 4.9% 4.9% 6.9% F-4.% 4.2% 5.6%.% F % 9.6% 1.7% 11.2% F % 12.% 13.1% 13.7% F-22.%.%.%.% F-111.%.%.%.% F % 4.1% 4.9% 4.9% H-1.%.%.5%.% H % 13.6% 12.7% 3.1% H % 23.3% 26.8% 4.6% TABLE A-4: PERFORMANCE INDICATORS LISTED IN WCF BUDGET FOR MILITARY SERVICES 15

16 US TRANSCOM Unit Cost Air Mobility Command Unit Cost FY 22 FY 23 FY 24 FY 25 Channel Passenger (million passenger miles) $238,663 $296,562 $261,714 $252,661 Channel Cargo (million ton miles) $1,473,134 $1,71,372 $2,212,55 $2,393,948 SAAM/JCS (million ton miles) $523,921 $681,963 $89,698 $832,65 Training C-17 (cost per flying hour) $1,389 $7,818 $9,77 $9,2 Military Sealift Command Unit Cost FY 22 FY 23 FY24 FY 25 Petroleum Tankership Ship Days $4,73 $48,821 $36,134 $42,77 Surge Reduced Operating Status (ROS) Ship Days $22,16 $18,262 $2,334 $21,947 Army Afloat Prepo Ship Days $37,463 $4,991 $46,15 $46,21 Chartered Cargo Ship Days $28,975 $31,466 $28,657 $28,214 Military Traffic Management Command Unit Cost Global POV $3,172. $3,85. $3,112. $3,165. Liner Ocean Transport $79.15 $61.59 $49.59 $49.69 Defense Courier Service Unit Cost Cost per 1, pounds delivered $7,9 $5,638 $5,55 $5,65 US TRANSCOM Workload Actual and Forecast Recurring Peacetime Workload Air Mobility Command FY 22 FY 23 FY24 FY 25 Training Flying Hours C-17 (AMC) 17,33 36,73 42,245 45,268 Channel Cargo Ton Miles SAAM/JCS Ton Miles 3, , , ,163.8 Military Sealift Command Petroleum Tankership Ship Days (MSC) 3,843 2,53 2,928 2,628 Army Afloat Prepo Ship Days 3,365 4,745 4,392 4,38 DLA Afloat Prepo Ship Days 1,95 1, Defense Courier Service Pounds Delivered (thousands) 3,1 3,6 2, 2, US TRANSCOM Customer Rate Changes Customer Rate Changes Air Mobility Command FY 22 FY 23 FY24 FY 25 Channel Passengers 6.% 1.7% 1.7% 1.8% Channel Cargo 7.2% 11.% 1.7% 1.8% SAAM/JCS -3.8%.4% -1.3% 5.7% Training 9.6% -1.9% 2.7% 3.8% Military Sealift Command Chartered Cargo -4.4% 37.4% -42.7% 33.4% Petroleum Tankerships 14.4% 13.4% -5.8% 54.% Surge FOS 45.6% -8.7% -5.4% -5.3% Surge ROS 45.6% -8.7% -9.6% 6.1% Army Afloat Prepositioning 14.5% 11.7% 8.2% -1.5% Air Force Afloat Prepositioning 14.5% 11.7% -2.9% 2.4% DLA Afloat Prepositioning 14.5% 11.7% -28.4% 22.5% Military Traffic Management FY 22 FY 23 FY24 FY 25 Cargo Operations -4.% -38.3% 2.% 23.9% Global POV -7.% -14.7% 15.6% 13.% Liner Ocean Transportation -1.4% -8.4% -2.6% -7.6% Defense Courier Service Pounds Delivered -22% -4.4% -.4% 3.7% 16

17 Marine Corps Depots Performance Indicators: FY 22 FY 23 FY 24 FY 25 Schedule Conformance 97.5% 97.4% 99.5% 99.3% Quality Deficiency Reports.2%.2%.2%.2% Inventory Turnover Ratio 5.2:1 6.1:1 6.7:1 7.5:1 Stabilized Customer Rate $15.81 $ $126.3 Composite Rate Change* 7.% 11.17% 7.38% 1.2% * The FY 24 rate increase over the FY 23 President s Budget is due to decreased workload and cost. Cost per Direct Labor Hour $115.7 $136.8* $135.5 $132.2 * Increase by18% due to declining workload coupled with increase hourly rate of direct material., removal of VSIP cost, increased direct material cost for material intensive workload TABLE A-5: PERFORMANCE INDICATORS FOR US TRANSCOM AND MARINE CORPS DEPOTS 17

18 1 Brigham, Eugene F. and Louis C. Gapenski, 199, Cases in Financial Management, p AWCF, AFWCF, NWCF, FY Biennial Budget Estimates. 3 Telephone interview with John Nauseef, Brig Gen, USAF (Ret), Dayton Aerospace, 4141 Colonel Glenn Highway, Suite 252, Dayton, Ohio 45431,